ORRVILLE, Ohio, Feb. 16 /PRNewswire-FirstCall/ -- The J. M. Smucker Company (NYSE: SJM) today announced results for the third quarter ended January 31, 2007, of its 2007 fiscal year.
Third Quarter Results
Three months ended
January 31, % Increase
2007 2006 (Decrease)
(Dollars in millions, except per share data)
Net sales $523.1 $536.5 (2%)
Net income:
Income $40.4 $31.3 29%
Income per common share $0.71 $0.54 31%
Net sales increased 6 percent in the third quarter, excluding the Canadian nonbranded, grain-based foodservice and industrial businesses sold in September 2006 and the U.S. industrial ingredient business ("divested businesses"). Growth in the Smucker's(R), Jif(R), and Crisco(R) brands, strong performance across the special markets segment, and the contribution of previously acquired brands resulted in the increase. Higher sales, gross margin improvements, a reduction in restructuring and merger and integration costs, a lower effective tax rate, and a decrease in shares outstanding, all contributed to an increase in earnings per share for the quarter.
Net income for the third quarter of 2007 included pretax restructuring charges of $0.5 million, or approximately $0.01 per diluted share, while net income for the third quarter of 2006 included pretax merger and integration costs of $7.8 million, or $0.08 per diluted share, and restructuring charges of $5.4 million, or $0.06 per diluted share. Excluding these costs in both years, the Company's income per diluted share would have been $0.72 in the third quarter of 2007, and $0.68 in the third quarter of 2006. Included in last year's third quarter earnings was a pretax gain of $5.6 million, or $0.06 per diluted share, related to the sale of the Company's Salinas, California, facility.
The Company's operations also generated substantial levels of cash during the quarter. Cash from operations for the third quarter of 2007 was $104.6 million of which $15.3 million was used to repurchase 322,000 common shares, including shares repurchased to complete the previously announced Rule 10b5-1 plan.
"We achieved good results for the quarter with sales growth and share of market gains across most of our brands," commented Richard Smucker, president and co-chief executive officer. "Earnings grew at an even stronger rate, despite escalating raw material costs, as we are realizing the benefits of previous actions we have taken to offset cost increases and improve our overall profitability. We expect the cost environment to remain difficult and we will continue to take actions to mitigate the cost increases."
Nine-Month Results
Nine months ended
January 31, % Increase
2007 2006 (Decrease)
(Dollars in millions, except per share data)
Net sales $1,654.5 $1,653.0 --
Net income:
Income $114.7 $107.7 7%
Income per common share $2.01 $1.83 10%
Net sales were up 5 percent for the first nine months of fiscal 2007 over 2006 after excluding divested businesses.
Net income for the first nine months of 2007 included pretax restructuring charges of $11.3 million, or $0.13 per diluted share, primarily related to the divestiture of the grain-based Canadian operations. Net income for the comparable period in 2006 included pretax merger and integration costs of $14.8 million, or $0.16 per diluted share, and restructuring charges of $9.1 million, or $0.10 per diluted share. Excluding these costs in both years, the Company's income per diluted share would have been $2.14 for the first nine months of 2007, and $2.09 for the first nine months of 2006.
The Company uses income and income per diluted share, excluding restructuring and merger and integration costs, as key performance measures of results of operations for purposes of evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with U.S. GAAP. Rather, the presentation of results excluding such charges is consistent with the way management internally evaluates its businesses, facilitates the comparison of past and present operations, and provides a more comprehensive understanding of the financial results. A reconciliation of non-GAAP measures to net income for the current quarter and nine-month period is included in the "Unaudited Financial Highlights" table.
Margins
Three months ended Nine months ended
January 31, January 31,
2007 2006 2007 2006
(% of net sales)
Gross margin 33.1% 30.5% 31.6% 32.2%
Selling, distribution, and
administrative expenses 20.8% 19.3% 20.1% 20.2%
Operating margin 12.3% 8.9% 11.3% 10.6%
The increase in operating margin was primarily due to improvements in gross margin. The impact of the Canadian divestiture earlier in the year, combined with favorable product mix, accounted for the majority of the improvement in gross margin. Pricing actions taken to date have also contributed to margin improvement. The Company continues to incur high commodity costs impacting both raw material and freight and continues to take pricing actions to offset a portion of the increased costs. Due to the timing of these pricing actions, all cost increases have not been fully offset.
Selling, distribution, and administrative expenses as a percentage of net
sales increased primarily due to higher marketing and administrative expenses
compared to the same period last year. Distribution expenses decreased from
the prior year.
Segment Performance
Three months ended Nine months ended
Net sales January 31, January 31,
%Increase %Increase
2007 2006 (Decrease) 2007 2006 (Decrease)
(Dollars in millions)
U.S. retail market $393.8 $375.8 5% $1,181.6 $1,147.2 3%
Special markets $129.3 $160.7 (20%) $473.0 $505.8 (6%)
Special markets excluding
divested businesses $129.2 $116.0 11% $394.6 $356.0 11%
U.S. Retail Market
U.S. retail market segment sales for the quarter were up 5 percent, with sales in the consumer strategic business area up 4 percent and sales in the consumer oils and baking strategic business area up 5 percent. Increases in the consumer strategic business area were led by gains in peanut butter, fruit spreads, toppings, and Uncrustables(R). In the consumer oils and baking strategic business area, sales gains in retail oils, frostings, baking ingredients, and the contribution of the White Lily(R) brand acquired earlier in the year offset declines in sales of industrial oils and baking mixes.
For the first nine months, sales in the consumer strategic business area were up 5 percent, and sales in the oils and baking strategic business area were flat.
Special Markets
Sales in the third quarter for the special markets segment, excluding divested businesses, increased 11 percent. All strategic business areas in special markets were up with foodservice up 15 percent, Canada up 10 percent, beverage up 8 percent, and international up 15 percent. Increased sales of traditional portion control products, as well as increases in Uncrustables in the schools market contributed to the foodservice improvement. The increase in Canada was driven by the acquisition of the Five Roses(R) flour brand earlier in the year, the impact of favorable exchange rates, and growth in pickles and relishes.
Outlook
The Company remains committed to its long-term sales growth goal of 8 percent, one-half of which is to come from its core business and new products, and the remainder from acquisitions. Long-term earnings per share growth would be in line with sales growth.
The Company expects 2007 sales to increase by approximately 4 percent over last year, excluding approximately $100 million in sales related to the divestiture of the Canadian nonbranded, grain-based foodservice and industrial businesses. Although the cost environment continues to be challenging, the Company's goal remains to increase income per common share for the year in line with the core growth assumption of 4 percent from fiscal 2006 income per common share of $2.65, which excludes restructuring and merger and integration costs, the gain on the sale of the Company's Salinas, California, plant, and nonrecurring tax benefits.
Conference Call
The Company will conduct an earnings conference call and webcast on Friday, February 16, 2007, at 8:30 a.m. E.T. The webcast, as well as a replay in downloadable MP3 format, can be accessed from the Company's website at www.smuckers.com. For those unable to listen to the webcast, an audio replay will be available following the call and can be accessed by dialing 888-203- 1112 or 719-457-0820, with a pass code of 6495745, and will be available until Friday, February 23, 2007.
About The J. M. Smucker Company
The J. M. Smucker Company is the leading marketer and manufacturer of fruit spreads, peanut butter, shortening and oils, ice cream toppings and health and natural foods beverages in North America. Its family of brands includes Smucker's(R), Jif(R), Crisco(R), Pillsbury(R), R.W. Knudsen Family(R), Hungry Jack(R), White Lily(R) and Martha White(R) in the United States, along with Robin Hood(R) and Bick's(R) in Canada. The Company remains rooted in the Basic Beliefs of Quality, People, Ethics, Growth and Independence established by its founder and namesake more than a century ago. Since 1998, the Company has appeared on FORTUNE Magazine's annual listing of the 100 Best Companies to Work For in the United States, ranking number one in 2004. For more information about the company, visit www.smuckers.com.
The J. M. Smucker Company Forward-Looking Language
This press release contains forward-looking statements, including statements regarding estimates of future earnings and cash flows that are subject to risks and uncertainties that could cause actual results to differ materially. Uncertainties that could affect actual results include, but are not limited to, volatility of commodity markets from which raw materials are procured and the related impact on costs, volatility of energy and fuel costs, the success in introducing new products and the competitive response, particularly in the consumer oils and baking area, costs of new marketing and sales programs and strategies intended to promote growth in the Company's businesses, the ability to successfully implement price changes, the timing and amount of restructuring costs, the timing of acquiring common shares under the Company's share repurchase authorization, and other factors affecting share prices and capital markets generally. Other risks and uncertainties that may materially affect the Company are detailed from time to time in the respective reports filed by the Company with the Securities and Exchange Commission, including Forms 10-Q, 10-K, and 8-K.
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Income
Three Months Ended Nine Months Ended
January 31, January 31,
2007 2006 2007 2006
(Dollars in thousands, except per share data)
Net sales $523,081 $536,453 $1,654,545 $1,653,048
Cost of products sold 349,425 371,981 1,122,412 1,120,193
Cost of products sold -
restructuring 689 618 9,981 865
Gross Profit 172,967 163,854 522,152 531,990
Selling, distribution, and
administrative expenses 108,789 103,610 333,274 334,259
Other restructuring costs (199) 4,783 1,337 8,248
Merger and integration costs - 7,764 - 14,784
Operating Income 64,377 47,697 187,541 174,699
Interest income 2,629 1,709 6,625 4,858
Interest expense (5,656) (5,984) (17,681) (18,116)
Other (expense) income - net (902) 6,150 (1,210) 6,269
Income Before Income Taxes 60,448 49,572 175,275 167,710
Income taxes 20,021 18,260 60,555 60,057
Net Income $40,427 $31,312 $114,720 $107,653
Net income per common share $0.72 $0.54 $2.03 $1.85
Net income per common share
- assuming dilution $0.71 $0.54 $2.01 $1.83
Dividends declared per
common share $0.28 $0.27 $0.84 $0.81
Weighted-average shares
outstanding 56,185,039 57,944,604 56,494,799 58,106,913
Weighted-average shares
outstanding - assuming
dilution 56,787,600 58,486,412 57,060,218 58,708,209
The J. M. Smucker Company
Unaudited Condensed Consolidated Balance Sheets
January 31, 2007 April 30, 2006
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $152,168 $71,956
Marketable securities - 14,882
Trade receivables 117,619 148,014
Inventories 277,289 279,088
Assets held for sale (1) - 90,250
Other current assets 34,850 38,648
Total Current Assets 581,926 642,838
Property, Plant, and Equipment, net 453,274 456,554
Other Noncurrent Assets:
Goodwill 988,797 940,967
Other intangible assets, net 476,720 472,915
Marketable securities 46,984 34,107
Other assets 108,177 102,363
Total Noncurrent Assets 1,620,678 1,550,352
$2,655,878 $2,649,744
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $80,619 $88,963
Notes payable - 28,620
Current portion of long-term debt 33,000 -
Other current liabilities 133,876 117,857
Total Current Liabilities 247,495 235,440
Noncurrent Liabilities:
Long-term debt, net of current portion 393,383 428,602
Other noncurrent liabilities 259,609 257,643
Total Noncurrent Liabilities 652,992 686,245
Shareholders' Equity, net 1,755,391 1,728,059
$2,655,878 $2,649,744
(1) Accounts related to the Company's Canadian nonbranded, grain-based
foodservice and industrial business, which was divested in
September 2006.
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Cash Flow
Nine Months Ended January 31,
2007 2006
(Dollars in thousands)
Operating Activities
Net income $114,720 $107,653
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 42,387 47,133
Amortization 1,186 74
Asset impairments and other
restructuring charges 10,089 865
Share-based compensation expense 8,282 5,889
Gain on sale of assets - (5,638)
Working capital 35,378 (31,396)
Net Cash Provided by Operating Activities 212,042 124,580
Investing Activities
Business acquired, net of cash acquired (60,488) -
Proceeds from sale of business 84,054 8,754
Additions to property, plant, and equipment (42,903) (42,715)
Other - net 2,251 33,321
Net Cash Used for Investing Activities (17,086) (640)
Financing Activities
Dividends paid (47,820) (47,044)
Purchase of treasury shares (51,943) (30,122)
Other - net (11,655) (15,372)
Net Cash Used for Financing Activities (111,418) (92,538)
Effect of exchange rate changes (3,326) (241)
Net increase in cash and cash equivalents 80,212 31,161
Cash and cash equivalents at
beginning of period 71,956 58,085
Cash and cash equivalents at end of period $152,168 $89,246
( ) Denotes use of cash
The J. M. Smucker Company
Unaudited Financial Highlights
Three Months Ended Nine Months Ended
January 31, January 31,
2007 2006 2007 2006
(Dollars in thousands, except per share data)
Net sales $523,081 $536,453 $1,654,545 $1,653,048
Net income and net income per
common share:
Net income $40,427 $31,312 $114,720 $107,653
Net income per common share
-- assuming dilution $0.71 $0.54 $2.01 $1.83
Income excluding restructuring
and merger and integration
costs: (1)
Income $40,828 $39,711 $122,127 $122,993
Income per common share --
assuming dilution $0.72 $0.68 $2.14 $2.09
(1) Reconciliation to net income
Income before income taxes $60,448 $49,572 $175,275 $167,710
Merger and integration costs - 7,764 - 14,784
Cost of products sold -
restructuring 689 618 9,981 865
Other restructuring costs (199) 4,783 1,337 8,248
Income excluding income
taxes, restructuring, and
merger and integration costs 60,938 62,737 186,593 191,607
Income taxes 20,110 23,026 64,466 68,614
Income excluding restructuring
and merger and integration
costs $40,828 $39,711 $122,127 $122,993
The Company uses income and income per diluted share, excluding
restructuring and merger and integration costs, as key performance
measures of results of operations for purposes of evaluating performance
internally. These non-GAAP measures are not intended to replace the
presentation of financial results in accordance with U.S. GAAP. Rather,
the presentation of results excluding such charges is consistent with
the way management internally evaluates its businesses, facilitates the
comparison of past and present operations and provides a more
comprehensive understanding of the financial results.
CONTACT: Investors, Mark R. Belgya, Vice President, Chief Financial Officer and Treasurer, or Media, Maribeth Badertscher, Director, Corporate Communications, of The J. M. Smucker Company, +1-330-682-3000
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